AudiencScapes

By Peter Goldstein, Project Director, AudienceScapes

Rio de Janeiro, Brazil --I’m at the mobile money summit organized by the GSMA, the global association of mobile operators. Mobile money (that is, the ability to transfer money, make payments and perform other financial transactions on a mobile phone) is clearly growing by leaps and bounds and its global coverage is widening at a brisk clip. The GSMA tallies 65 mobile money “deployments” by phone companies (who typically partner with banks) and 86 more launches in the pipeline, stretching across every developing/emerging region. The developed world is also getting into the mix through the conduit of international remittances, and the buzz here is that a number of European banks will soon launch mobile-based remittance systems targeted at customer sending money to various parts of Africa and South Asia.

As expected, there is plenty of discussion among operators and vendors about their ARPUs, marketing strategies, rollouts, profit margins and other typical concerns of commercial businesses. But mobile money is also a theme for the development aid community, with the likes of the Bill & Melinda Gates Foundation, the World Bank and the U.K. development agency (DFID) represented here. Their aim is to prime the mobile money pump in order to help the world’s poorest benefit from increased access to financial services. For example, Gates (through the GSMA) is sponsoring a number of “pilot projects” aiming to accelerate and stretch the boundaries of mobile money services.

This is intriguing in the sense that mobile money is in fact a commercial product, as shown by the huge number of companies present here and hawking their technologies, services and products. So what role are development aid groups actually playing? Are they providing venture capital? Are they providing subsidies? Are they providing incentives for mobile operators to enter parts of the market- for example, remote rural areas-which they wouldn’t otherwise touch?

When asked about this, Sriraman Jagannathan, the M Commerce CEO at India’s Bharti Airtel Ltd. (which recently acquired Zain’s African business in a massive $10.7 billion deal) highly praised the work of the donors and aid groups. But he also warned of a “pilot” mentality that such aid spawns. In other words, he believes that worthy mobile money projects are those which make business sense, and if they do make business sense, then they companies will develop them. I think he means that the presence of aid donors on the business side of the equation may risk distorting or diverting what is in fact a commercially-driven sector.  

Jagannathan added that the aid community has a crucial role to play in so-called “financial literacy” – educating people about how to manage money and how to benefit from financial services, as well as how to avoid scams and bad deals. This is clearly a major issue in many developing countries where illiteracy is high, education levels are generally low, and trust in any institution – let alone a financial institution – tends to lag.

Note that AudienceScapes research contains a pithy section  asking people about their exposure to financial services as well as where their exposure to information about financial services, which would greatly benefit those looking at financial literacy issues.

For their part, the aid contingent wants things to happen quickly, and I heard some frustration about this. For example, Daniel Radcliffe, who works on financial services for the poor at Gates, lamented the fact that many of the 30-some deployments they are sponsoring have not yet shown anywhere near the promising early growth rates of the now-famous M-Pesa product in Kenya, which shot out of the gate in 2007 and captured the imagination of mobile operators and development agencies alike.

Radcliffe’s main advice to mobile money operators: You can’t build a successful mobile money operation incrementally. You need to sink major funds from the get-go in order to reach the much-desired “network effects” – that is, gaining a critical mass of users and agents such that viral and other spontaneous marketing effects gain steam. Mobile money takes off when enough people and vendors tell enough other people and vendors that they need and want to use such a service. This requires, among other things, “heavy above-the-line [read radio, TV, etc.] marketing” and “greasing” the registration of new customers with payments to the agents who are doing the sign-up.

While Radcliffe’s suggestions were entirely logical and helpful, and were obviously built on extensive on-the-ground experience, I once again had to ponder why private companies needed an aid organization to tell them as much. On a related note, my impression here is that the economics of mobile money is still being worked out, even of those deployments (especially in Kenya and Philippines) which are perceived as success stories. And when push comes to shove, there seem to be very few cases in which a mobile money product is independently profitable. However, the operators say that they are paying off in terms of making their subscribers more “sticky” (i.e. giving them a reason not to switch to another operator) and cutting out the middle man when it comes to selling phone airtime.

At the end of the day, I think the jury is still out on the extent to which widespread use of mobile money applications will require ongoing pushes from the aid community. This is a very young industry, but a very enthusiastic and fast-growing one, and like others in the past, it may take a few years to discover what makes business sense and what does not – and whether a helping hand is needed to make sure the Bottom Billion have a chance to benefit from mobile money.

Photo Courtesy of Flickr and Rachel Strohm